Business grapples with carbon tax repeal

Palmer United Party leader Clive Palmer said on Monday that he would announce his final position on the carbon tax on Wednesday, describing that announcement as “one of the most significant in the nation’s history”.
Pic: Alex Ellinghausen

The electricity industry is counting on parliament repealing the carbon tax by July 18, as business grapples with how to unwind the tax from contracts.

Power companies agreed in a deal late last week to price carbon at zero in contracts from July 1 but if the tax is not repealed before July 18, the carbon price will be $24.50 until the repeal receives royal assent.

Generators are still negotiating with the competition regulator about how to deal with windfall gains, of up to $6 million a day, if the tax is not repealed until September.

The Abbott government plans to pass the carbon tax repeal through the lower house on Monday but it won’t be debated in the upper house until the new senate sits on July 7.

Prime Minister
Tony Abbott
said the repeal will be dealt with “urgently" by the new senate, where he needs the support of four of the six cross-bench senators.

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“I expect this toxic tax to be gone," the prime minister said on Monday.

Palmer United Party leader
Clive Palmer
said on Monday that he would announce his final position on the carbon tax on Wednesday, describing that announcement as “one of the most significant in the nation’s history".

Mr Palmer opposes the Coalition’s plan to replace the carbon tax, the so-called direct action policy, which includes possible penalties for large emitters.

Environment Minister
Greg Hunt
said to prolong uncertainty about the carbon tax any longer would be an “act of legislative vandalism".

Mr Hunt insisted that electricity generators would not put able to profit from windfall gains if the repeal is delayed until after September, when companies liable for the carbon tax can sell their free permits back to the regulator.

ACCC in talks with generators

Australian Competition and Consumer Commission chairman Rod Sims warned energy generators in May about any attempts to pocket windfalls of about $180 million a month at the expense of retailers and consumers.

He has since abandoned plans for a formal mechanism for generators to pay back the money and is now negotiating with the main players, including
AGL
,
Origin
and EnergyAustralia to sort out the issue.

“We’re now dealing with each of the generators. We’ve spoken as a group and now they are undertaking to explain to us individually how they will give back carbon gains," Mr Sims said in an interview with The Australian Financial Review.

“We don’t know the extent of the issue until we know when the carbon tax is repealed."

The Abbott government wants the abolition of the carbon tax to be retrospective to July 1, but customers have to continue to pay carbon costs in their electricity bills until the carbon tax is scrapped.

The ACCC negotiations have been focusing on the big three energy players – AGL, Origin and EnergyAustralia – who have a 70 per cent market share as well as other key generation companies such as Stanwell Corporation, CS Energy, Macquarie Generation and International Power.

Mr Sims said while there was a willingness of the generators to pay back any windfall, but he admitted it became complicated the longer the repeal of the tax was delayed.

“We’re quite confident we can sort this out. If we have one or two small players who don’t want to play ball we can deal with them," he said.

“But the big players are signaling they will move quickly and they will come up with something to deal with the retrospective issue."

He said if the carbon tax was scrapped in early July the regulator may not force companies to pay back compensation, especially given the AFMA contracts before July 18 would be backdated to July 1.

“If it goes in the first days of July, it would be kind of silly to give back compensation, you’d have to ask seriously whether it was work it," he said.

The electricity generators may decide to pay back compensation to retailers who then in turn could pass back rebates directly to customers on their household power bills.

The ACCC will be watching billing cycles to ensure the rebates are passed back as quickly as possible to customers.

Energy retailers do a deal

The Australian Financial Markets Association, which monitors the $76 billion over-the-counter market, late last week ended months of deliberations to resolve the thorny issue of how to treat carbon in electricity contracts next financial year.

An AFMA sub-committee, that includes generators, retailers and intermediaries, had failed to reach a unanimous verdict in three earlier votes for dealing with over the counter contracts next financial year. (Spot contracts have largely factored in the demise of the carbon tax by the end of the year).

AFMA director of markets Mike Chadwick confirmed the electricity sub-committee resolved to put no carbon price into contracts up to July 18, backdating it to the beginning of the financial year. This would allow two weeks of federal parliament to repeal the carbon tax.

But if the matter was unresolved by July 18, the carbon element of contracts would not be removed until the carbon tax laws were officially scrapped.

“In the event the Senate can’t pass the carbon tax repeal by the 18th of July - which is the end of the Senate sitting for that period, then the carbon reference price number would not be zero," he said.